More Problems Ahead for Apple

To stay on top over time, Apple will have to engage actively in the creative destruction of the very revenue model that sustains it.

All eyes are on digital titan Apple this week. Despite quarterly profits of over $13 billion, the recent success of the iPad mini, and seemingly strong growth rates for both the iPhone and iPad, the share price is off more than a third from its pre-iPhone-5 launch high of over $700, and the company has shed over $200 billion in market cap over the last five months. Could this merely be the extreme volatility often associated with the digital sector? Or perhaps the expectations of Apple's investors have evolved to mirror those of iconic founder Jobs, demanding nothing less than perfection from the company?

This market reaction is not just an aberration. There are more stormy waters ahead for Apple, whose success is largely rooted in a tumultuous, yet determined history that gave it a massive head start a decade ago as the digital landscape became consumer-centric. Granted, this early edge has led to an impressive array of short-run technological barriers to entry and a tremendous revenue stream today. But the lead is dwindling and the barriers are fading. To keep its spot on top, Apple will soon need to participate in the imminent creative destruction of its revenue model. This calls for caution.